“Replacing the Business Tax with Value-Added Tax (VAT) was fully implemented nationwide on May 1, 2016. As a result, various industries have familiarized themselves with the methods for transitioning from business tax to VAT. But what does this change mean for employees in their daily lives? For frequent travelers, the most noticeable impact involves expense reimbursements. Let’s explore how to address reimbursement issues following the VAT reform by first understanding some key concepts.
1. VAT Input Tax and Output Tax
VAT amount = Output tax amount – Input tax amount.
Note: Output tax refers to the VAT collected by general taxpayers (businesses) when selling goods to buyers. Input tax is the VAT paid by general taxpayers when purchasing goods or taxable services.
2. VAT Special Invoice vs. Ordinary Invoice
VAT special invoices are generally available only to general taxpayers. Small-scale taxpayers can only obtain these after approval from local tax authorities. Ordinary VAT invoices refer to all other taxpayer invoices that are not special invoices. It’s important to note that only VAT special invoices can be used to offset VAT for tax purposes; ordinary invoices cannot.
As mentioned, VAT special invoices can be used to offset input tax. Let’s take a closer look at which items are deductible and which are not.
Deductible VAT Input Tax Items (with VAT Special Invoice)
Serial Number
Common Reimbursement Items
Supplier Type
Tax Rate or Levy Rate
1
Office supplies, office consumables
General taxpayer
17%
Small-scale taxpayers
3%
2
Purchase of fixed assets (furniture, equipment, cars, etc.)
General taxpayer
17%
Small-scale taxpayers
3%
3
Accommodation expenses during travel
General taxpayer
11%
Small-scale taxpayers
3%
4
Venue rental fees, conference fees, etc. (conference expenses)
General taxpayer
11%
Small-scale taxpayers
6%
5
Postage
General taxpayer
11%
Small-scale taxpayers
3%
6
Printing costs
General taxpayer
17%
Small-scale taxpayers
6%
7
Software and gasoline expenses; Green plants (sales of assets by non-agricultural producers)
General taxpayer
17%
Small-scale taxpayers
3%
8
Repair costs (cars, equipment, etc.)
General taxpayer
17%
Small-scale taxpayers
3%
9
Car rental and equipment rental fees
General taxpayer
17%
Small-scale taxpayers
3%
10
Rent
General taxpayer
11%
Small-scale taxpayers
3%
11
Sending letters, parcels, purchasing postal books and other postal products
General taxpayer
11%
Small-scale taxpayers
3%
12
Communication expenses (not for personal use)
General taxpayer
11%
Small-scale taxpayers
3%
13
Internet fees
General taxpayer
6%
Small-scale taxpayers
3%
14
Technical consultation (feasibility studies, etc.)
General taxpayer
6%
Small-scale taxpayers
3%
15
Software development, testing, maintenance; purchase of process management services provided by IT
General taxpayer
6%
Small-scale taxpayers
3%
16
Storage fees; loading/unloading fees; handling fees; express delivery; customs clearance agency fees; transportation agency fees
General taxpayer
6%
Small-scale taxpayers
3%
17
Product certification, technical certification; audit fees, consultant fees, lawyer fees
General taxpayer
6%
Small-scale taxpayers
3%
18
Vehicle insurance
General taxpayer
6%
Small-scale taxpayers
3%
19
Electricity bill
General taxpayer
17%
Small-scale taxpayers
3%
20
Water charges; heating costs; gas costs; newspaper subscriptions
General taxpayer
13%
Small-scale taxpayers
3%
21
Design fees; advertising expenses; exhibition fees
General taxpayer
11%, 6%
Small-scale taxpayers
3%
22
Property management fee, cleaning fee, landscaping fee
General taxpayer
11%, 6%
Small-scale taxpayers
3%
23
Toll fees (May – July 2016)
Highway toll fees
3%
Toll for first-class highway, second-class highway, bridges, and gates
5%
24
Labor protection fees
General taxpayer
17%
Small-scale taxpayers
3%
Non-deductible VAT Input Tax Items (using VAT ordinary invoices and fixed invoices)
Serial Number
Common Reimbursement Items
Deductible Input
Invoice Type
1
Entertainment expenses
Cannot deduct input
VAT ordinary invoice
2
Catering and transportation expenses during travel
Cannot deduct input
VAT ordinary invoice
3
Catering expenses at conferences
Cannot deduct input
VAT ordinary invoice
4
Employee welfare expenses
Cannot deduct input
VAT ordinary invoice
5
Fresh live meat and egg products
Cannot deduct input
VAT ordinary invoice
6
Transportation expenses
Cannot deduct input
VAT fixed invoice
7
Parking fees
Cannot deduct input
VAT fixed invoice
8
ETC recharge
Cannot deduct input
VAT ordinary invoice
Below are some common scenarios explained by the editor:
1. Hospitality Expenses
Question: The company hosted Xiaoming for an inspection and incurred hospitality costs of 1000 yuan. Can the tax be deducted?
Answer: Hospitality expenses are not deductible, even if a special invoice is issued. Additionally, any excess portion of hospitality costs is subject to a 25% income tax, so use these expenses wisely!
2. Travel Expenses
Question: I will be on a business trip for one week soon. What should I keep in mind after the VAT reform?
Answer: Travel expenses include meals, accommodation, and transportation. Only accommodation expenses can be deducted with a special invoice!
3. Conference Expenses
Question: The company will hold a business promotion meeting soon, and I’m responsible for organizing it. The total meeting cost is 4000 yuan, including 2000 yuan for catering. Can all of these be deducted?
Answer: Venue rental fees and conference fees are deductible, but catering expenses are not.
4. Welfare Expenses
Question: The company asked me to purchase holiday gifts, which included many presents and food items with special invoices issued.
Answer: Welfare expenses are not deductible for VAT purposes. To reduce costs, choose the most affordable options of similar quality!
5. Office Supplies
Question: When purchasing office supplies, supplier C issues a special invoice for 1170 yuan, while supplier B issues an ordinary invoice for the same amount.
Answer: Only the special invoice from supplier C is deductible. Supplier B’s invoice, despite the same amount, cannot be deducted. Therefore, always choose supplier C.
6. Unprocessed Reimbursements Before VAT Reform
Question: I still have some expenses from this year that have not been reimbursed. Can I claim them after the VAT reform?
Answer: Yes, but reimbursements must be completed by June 30. After May 1, make sure to request special invoices for any expense claims!
7. Centralized Procurement and Invoice Precautions
Question: What should a company pay attention to when making bulk purchases?
Answer: Contracts should specify whether prices include taxes, the type of invoice agreed upon, and when receiving invoices, ensure the invoice details match the contract.
8. Invoice and Reimbursement Procedures
Question: What should be checked upon receiving an invoice from a supplier?
Answer: Carefully verify that the invoice and its deduction copy are complete; check if the information is accurate and clearly written; look for security features like pressure lines and grids; and confirm that the invoice copies have the official special seal. Also, special invoice management is strict—input tax deductions must be certified within 180 days from the invoice date. When reimbursing, both the invoice and the deduction copies must be presented.
Understanding these fundamental invoice issues is essential, as expense reimbursement after the VAT reform directly affects our income.
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